CV sales will touch new peaks in some segments: Vinod Aggarwal, VECV

Overall, there is a slowdown but at the same time, it is not much of a concern in the medium to long term, said Vinod Aggarwal, MD & CEO, VECV, in an interview with ET Now. Edited excerpts:So, for the overall industry this year, we will see good growth and even in sub 5-ton segment, there is a growth of more than 20%.Most of the reports that we are reading seem to indicate that the Indian CV industry is entering a downturn. What exactly is the sense that you are getting? Is the slowdown of the last few months structural or cyclical in nature, according to you? There has been slowdown in last four months starting from November, But at the same time, we should not forget that the last year, the January to March quarter was a bumper quarter and this year due to that large base effect, the numbers are less as compared to the last quarter’s. But the numbers are still good. For example, in February, the heavy duty trucks industry was still 25,000 plus and 5-15 ton trucks industry was still 10,500 which are good numbers. So, overall, there is some slowdown but at the same time, it is not much of a concern in the medium to long term.

Would you attribute it to only high base effect or is it something else?

No, definitely there is liquidity crunch. After November, there has been some problem with respect to the financing by NBFCs. To that extent, there is liquidity crunch. Some retail customers are not able to get the financing as easily as it was earlier. Similarly, the interest rates have gone up a little bit. At the same time, there has been some impact of the axle load norms which were changed last year and due to that, higher capacity is also available.

Then the replacements are required but at the same time, the fleet operators are still waiting and watching because there is a lot of uncertainty. I am sure once the elections are over, we should get into regular demand and there would be a very strong replacement cycle that is coming in and then at the same time you will have the pre-buying impact due to BS VI norms that is going to kick in.

Another positive for the industry is infrastructure investments. The infrastructure sector is doing very well and as a result of that, even if the overall industry was looking down as compared to the same quarter (Jan to March) last year, the construction trucks -- tippers -- have grown even in February and YTD, the growth in tippers market is 50%. That is a huge growth in the construction trucks.

I would say infrastructure is continuing to be very strong. Apart from that, the e-commerce segment is continuing to lead to a lot of demands,. There are these positives which are in sectors which are leading to good prospects for the industry in medium to long term.

Do you see the liquidity situation improve any time soon? Are the headwinds that you just highlighted, going to sustain in the near to medium term as well? No. The liquidity crunch will get over because I have seen lots of steps being taken by NBFCs to raise the medium to long term finance. They are taking steps to substitute the short-term borrowing which they were doing, through commercial papers. They are coming out with more and more medium-term papers and at the same time, there is more support coming in from the banks. Banks have also started giving loans to NBFCs. I am confident that the NBFCs’ liquidity crunch should be over in next three to six months.

What is the current inventory level at present? Is there slump in demand in heavy duty segment or is it going to be more broad-based?

As far as the inventory is concerned, it is absolutely normal as far as we are concerned. I am not sure about the inventory of the competition but as far as Volvo Eicher is concerned, our inventory is absolutely normal and then we were growing.

In the YTD basis, we have grown by 14%. If you look at the industry also, on YTD basis, it is still growing handsomely and we are going to new peaks in all the segments like heavy duty trucks which will touch sales of close to 300,000 and light and medium duty (5-15 tonne) truck sales will go up to 1,10,000 to 1,15,00. The earlier peak was 1,03,000 in 2011-12. Buses sales should be around 65,000 to 75,000.

So, for the overall industry this year, we will see good growth and even in sub 5-ton segment, there is a growth of more than 20%. Overall CV industry will fare very well this despite facing some headwinds in last few months.

OEMs, according to you, are still doling out discounts in order to push sales. What exactly is the outlook on that front? Do you think that sort of a trend is going to continue?

Discounts are still continuing. They are on deal-to-deal basis. If there is a bulk deal, the discount maybe higher. If there is a retail deal, discounts maybe less. So the discounts are continuing. Of course, you can say it is a factor of demand and supply. Capacity is available with the industry and as a result, discounts are still high.

What is the likely impact on margins given the discounting trend and the decline that one has seen in the heavy and the medium segment so far?

In first nine months, we are maintaining the margins at around 8-9%. Of course, beyond a point, we have a very clear policy that we will not run after the market share, we will not sell the trucks at any cost. So, we have put an upper limit beyond which we will not give the discounting beyond a point. Each company has its policy on the same and as far as we are concerned, we are very clear that we will not go beyond a point.

In fact, segment leaders like Maruti Suzuki, Tata Motors and Hero MotoCorp have reported de-growth of 34.3 per cent, 45 per cent and 20 per cent, respectively giving a clear indication of a prolonged slowdown in the sector.